Zee Entertainment: Multiple steps by the Board; implementation key

20 Mar 2024 , 11:58 PM

In a call with investors and analysts, Zee’s Chairman R. Gopalan and other Directors (Punit Goenka was absent) assured that the recently constituted Independent Investigation Committee chaired by Justice Satish Chandra (a retired judge of Allahabad High Court) would investigate SEBI’s allegations against Zee’s KMP and soon submit a report to the Board. The Board would closely monitor the revival plan mentioned on the Q3 call. While the company has received expression of interest (EoI) from other investors, the Board would await the outcome of the litigation filed by Zee at the NCLT, so as to enforce the Sony merger before exploring alternatives. The Board expects Zee’s frugal DNA and its understanding of customer preferences to hold it in good stead amid the evolving competitive landscape, in light of the RIL-Disney deal. In analysts of IIFL Securities view, there could be protracted litigation even if Zee receives a favourable verdict from NCLT on the Sony merger. Meanwhile, Zee faces an uphill task in accelerating revenue growth and achieving 18-20% Ebitda margin guidance by FY26. It will also have to contend with the might of the RIL-Disney JV (assuming the deal consummates). Any potential strategic/financial investor in Zee can afford to wait for more attractive valuation. Maintain SELL with Rs160 TP. 

Zee has moved NCLT to enforce the merger with Sony: 

Despite Zee’s engagement with Sony in good faith and the MD&CEO’s willingness to step down, Sony terminated the agreement prematurely. Zee has moved NCLT in a bid to enforce Sony into the merger. The Board assured protection of interests of minority shareholders. 

Revival plan in place and being tightly monitored: 

The Board stated that the Covid related headwinds since 2020, weak ad spending environment and diversion of management bandwidth in the wake of preparation for Sony merger – all have affected performance. The Board is conducting a monthly exercise with business heads to set and review targets. It expects a revival in performance before the end of FY25. The Board is evaluating the future of Punit Goenka, even as it highlighted the importance of the knowledge of the business, its strengths and weaknesses in implementing the revival plan. 

Frugality and knowledge of customer preferences advantages: 

On implications from the RIL-Disney deal, the Board stated that Zee focuses on entertainment while RIL-Disney’s key strength is sports (a genre where Zee is absent). Zee sees ad revenue revival once FMCG companies increase their ad spend, on the back of improved consumer sentiments.